(Updates to midday)

* HSI up 0.4 pct, Shanghai Composite up 0.3 pct

* Pudong Development Bank leads A-share bank gains

* CSR boosted by anticipated strong profit

By Clement Tan

HONG KONG, Jan 5 (Reuters) – China shares rose on
Thursday, supporting the Hong Kong market and boosted by
strength in banks, but turnover stayed broadly tepid with a
survey suggesting growth momentum remained subdued in China.

The HSBC China services purchasing managers index (PMI) for
December, increasingly seen as a barometer of economic
conditions in the mainland, failed to cheer investors after it
pointed to sluggish growth in the sector.

The Shanghai Composite Index was up 0.3 percent at
2,176.4 points by midday, with seven banks among the top 10
boosts, including Shanghai Pudong Development Bank Co Ltd
up 3.8 percent in midday volume that exceeded twice
its 30-day average.

The mid-sized bank said net profit in 2011 rose 42.02
percent to 27.2 billion yuan ($4.32 billion), mainland media
reported. Some investors bought into the sector, taking the
report as a sign that concerns over bad debts could have been
overblown.

“It’s possible some funds have bought into banks today.
Valuations are already very low to begin with, so any signs that
show fears are overblown will bring investors back into the
market,” said Chen Yi, a Shanghai-based analyst with Xiangcai
Securities.

China’s largest lender, Industrial and Commercial Bank of
China Ltd was the top boost on the Shanghai
benchmark, up 1.2 percent. China Citic Bank Corp Ltd
jumped 5 percent in more than three times its 30-day average
volume at midday.

Citic Bank’s A-shares are trading at a 12-month forward
earnings multiple that is a 61 percent discount to its historic
median after slumping almost 50 percent in the last two years.

Turnover in the broader market was otherwise lacklustre, as
it has been for the last few months. In a move that could boost
interest in its capital markets, China plans to introduce a
Centralised Securities Lending Exchange to facilitate
short-selling, which is currently banned.

HONG KONG GAINS LACK CONVICTION

In Hong Kong, the Hang Seng Index was up 0.44 percent
at 18,810.38 by the midday trading break. The China Enterprises
Index of top mainland listings in the territory gained
0.51 percent.

Turnover remained lackluster on renewed fears in global
markets over the euro zone debt crisis, with a French bond
auction later on Thursday the latest flash point.

“It’s fair to say most are expecting the macro picture to
worsen further before getting better. Flows won’t start
increasing unless we get more clarity, particularly from China”
said Benjamin Chang, chief executive of LBN Advisors, which
manages $450 million worth of assets in two China funds.

China Mobile Ltd, the mainland’s largest mobile
operator, was up 1.7 percent, the top boost on the Hang Seng
Index, further pointing to caution and adding to its 6 percent
gain in 2011.

CSR Corp, the country’s largest train maker,
jumped 1.7 percent after it said 2011 net profit could rise more
than 50 percent from the prior year on strong orders.

(Editing by Chris Lewis)